Sanders embraces Kroll report suggestions

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Aired 4/19/09

San Diego Mayor Jerry Sanders took a bold step toward restoring Wall Street's confidence in the city's financial credibility. However, the move will not come cheap. Sanders held a press conference and a town hall meeting yesterday to publicly announce his ambitious plan to spend at least $45 million implementing every recommendation contained in the Kroll report.

That report investigated the city's failure to reveal its massive pension deficit to investors, and laid out ways to make sure that never happens again. KPBS reporter Alison St John has more.

The Kroll report is controversial, since many questioned if it was worth its $20 million price tag. But Mayor Sanders acted swiftly to endorse all 120 recommendations in the report.

Sanders: "We can look at them negatively as punishment being forced upon us or we can look at them as a once in a generation opportunity to establish best practices for ourselves and government bodies in similar situations."

The most costly element of the reform is $35 million for new information technology- in other words the hardware and software the city staff need to handle accounting effectively and communicate it honestly. Outdated computer systems have been a good excuse for the chaos in the city's books.

The next most costly item is to appoint a monitor to look over the city's shoulder for the next three years. That yet-to-be-named person will cost an estimated $4 million. According to the mayor's timeline, he'll appoint someone next month, with the approval of the city council. Sanders says the city will also appoint an independent audit committee and an auditor general.

Sanders: "I believe investors in the financial markets will judge us based on how and when we implement our remediation plan."

But City Attorney Mike Aguirre says anyone appointed by the city is not going to be independent of the city. He believes the Securities and Exchange Commission should appoint the monitor, and he scoffs at the independence of an audit committee that reports to city councilmembers. He believes four of whose councilmembers created the problem in the first place.

To Aguirre, the reform measures are as much of a whitewash as the other conclusions of the Kroll consultants, led by Arther Levitt.

Aguirre: "I don't believe the credit rating agencies can take any comfort to have these four individuals hire an influence peddler in the name of Mr. Levitt, and pay him $20 million in order to come back and create the facade that I think this report represents.

For his part, Arthur Levitt has accused Aguirre of demagoging the process to embarrass his colleagues Council President Scott Peters did refer yesterday to the report's conclusions , which accuse him of negligence in failing to disclose the city's pension deficit to bond holders.

Peters: "I must tell you the audit committee's report was tough read for me. It's never easy to see the kind of scrutiny of everything you said or did 3 or 4 years ago and I have some disagreements with the reports findings, but I want to emphasize that's not important now. We must put aside our difference over the report if we have them and embrace the report as a blueprint for moving ahead."

The report recommends training to make sure city staff keep up with best practices in municipal government, and the mayor's plan proposes to spend half a million a year for the next seven years on that.

Apart from the recommended reforms, the report contains another blow to the city's already battered finances. Eight million dollars were paid out the pension fund in the 1980s to cover the city's contribution to the retiree health plan. The money was called excess earnings, but that misnomer threatens the fund's tax exempt status so it will have to be paid back. The cost in today's money: $40 million.

None of these extra expenses is going to help the city's bottom line - already stretched impossibly thin - as Mayor Sanders reminded those gathered at a sparsely attended town hall meeting last night

Sanders: "Again I want to emphasize the implementation of this plan will not address the city's chronic financial conditions."

Sanders warned that the cost of the benefits provided for employees combined with the cost of the services provided to citizens are not sustainable. However, apart from promising yet again not to raise taxes, he gave little indication of how he would solve the problem, except by saying he envisions a smaller city workforce in the future.

The main goal of this week's exercise is to convince the credit rating agencies and investors that the city of San Diego is serious about cleaning up its act. Chief Financial Officer Jay Goldstone is optimistic that, even with its billion dollar pension deficit and hundreds of millions in deferred maintenance, investors will be willing to bank on the city again next year

Goldstone: "The city of New York came out with a $49 billion unfunded liability. Wwe're not that unique; they want to just see that there's plans in place and that we're addressing them and we're just not going to continue to ignore some of these needs."

However Goldstone admits it will be more difficult to implement the plan than it was to put it together. The city council will have a chance to give its input at special meeting in two weeks.

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